How to Start a Foreign Exchange Business

The exchange of money plays an important role in today's global marketplace. Without those who serve in the capacity of money ex-changers, buying and selling goods in foreign markets would be much more difficult. Currency exchange businesses must meet certain regulations and guidelines designed to prevent money laundering and other illegal financial activities.

Foreign exchange is everywhere. Anytime you want to buy a product or service in another country, your home currency needs to be exchanged for the currency of the country that sells the product or service. Thus, the help of a currency exchange service is necessary. Most of the time, consumers use their bank to do the exchange, which can be very expensive, 3 to 5 percent of the total transaction. Foreign exchange companies, however, can process the transaction at a lower cost.

If you are starting a foreign exchange business, you will have to work on your business plan. Regardless of your location, you can start this type of business. Determine the licensing requirements in your state or country.

Before making the final decision, make sure that you study the risks and benefits of the available options.

How to Open a Foreign Exchange Business

• Many people want to start their own business but the most common hindrances are lack of money and knowledge. If you are interested in foreign exchange, you can earn great profits by starting your own foreign exchange business. Regardless of your location, you can start this type of business. Determine the licensing requirements in your state or country. You can visit the concerned government agency to inquire about the requirements. Comply with the necessary documents and paperwork to apply for the business license and pay the fees. Processing may take some time but it’s worth the wait.

• Starting from scratch can be hard but a great idea to enter the industry is purchasing an existing company that is involved with trading. Set up costs are higher when you start from scratch. Before making the final decision, make sure that you study the risks and benefits of each option. If buying an existing company is better, then you can proceed. With the business license, you can operate the business with ease because everything will be legal. Here are the things that you need to do –

Things to Do for Starting a Foreign Exchange Business

• Set your objectives beforehand. Your goals or objectives should be realistic enough and evaluate your skills. Since you are going to be the owner, you should have enough background in Foreign Exchange. Analyzing the competition is vital as well. By doing so, you can identify the weaknesses of your competitors and use it against them. The costing and expenditures will make up the financials. You will be making forecasts for the next 5years. If your business is viable, you can easily seek funding (when needed). Another consideration is the staff. How many employees do you need? Hire only the most competent and reliable staffs.

• Choosing a good location is also important. The location of the existing company should be situated in the city center or anywhere where it is easily accessible. You also need to apply for utilities, internet, and phone lines. The business plan you create should have detailed financials and decide on the business structure. Overhead expenses should be kept low since you’re just starting out. With your knowledge in foreign exchange, you will surely succeed in this kind of business. So what’s it going to be – starting from scratch or buying an existing business? Choose the option that offers the best advantages. There will always be risks but with careful planning, you’re sure to become one of the most popular foreign exchange businesses.

Instructions:

Record-Keeping

One of the most important sets of rules and regulations regarding money exchange businesses revolves around the need for complete and accurate record-keeping. This is designed to prevent those in the money exchange business from engaging in money laundering. These rules vary by state. The state of Illinois, for example, requires that a daily cash sheet be kept, all check registers and bank statements be retained, and that all other types of related financial records be available for examination by public officials.

Licensing

Licensing is required to run a foreign currency exchange business. It's generally considered a criminal violation to run a currency exchange business without one. In Illinois, for example, anyone found guilty of running one of these businesses without a license is guilty of a misdemeanor. The licenses generally are obtained by going by your state's licensing department.

Fees

The fees that money exchange's charge are limited by state regulation. This prevents unfair trading practices by those that exchange currency by limiting the maximum amount they can charge per financial transaction. The amount that can be charged is generally dependent upon the amount of the check itself. For example, in Illinois, those cashing checks in excess of $100 only can be charged a maximum of 2.25 percent of the face value of the check.

Tax Reporting

Those engaged in a money exchange business are required by the Internal Revenue Service to report their earnings in U.S. dollars rather than in the foreign currency in which they conduct their business. The business owner can't use foreign currency for these reports. Instead, any exchange business located in the United States must use dollars only when reporting income. This is true even in cases where the business owner keeps financial records in a foreign currency.

Tips

• Incorporate in your home state where you will operate your foreign exchange company.

• Register your business with state and federal government. Contact your state's finance commission about registration; check under money exchange/transmitters. The business also needs to be registered with the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of the Treasury. Each state has its own set of registration filing fees.

• Assemble your business' operations manual. The manual is required in order to be compliant with your state's rules for operating a foreign exchange business. FinCEN and your state regulators will provide information regarding this task. It is their objective to make sure your foreign exchange company has certain operational procedures in place when taking on new customers and expediting their foreign exchange requirements. Your regulators also will help you take the necessary precautions so that you do not innocently take part in money laundering or other illegal activities. These are known Know Your Customers (KYC) procedures.

• Set up your business' accounting system. It advisable to speak with your accountant about your foreign exchange business. She can help with consolidating your various multicurrency accounts and prepare the necessary Internal Revenue Service forms that apply to foreign exchange companies.

• Locate banks in various countries with which you intend to clear your foreign exchange transactions. Start with a large bank that has an office or branch in that particular country. For example, the U.S. dollars account will be held at the New York branch, the British pound account will be held at the London, England, branch and the Canadian dollar account will be held at the Toronto, Ontario, branch. A clearing bank that provides online banking displaying all your multicurrency accounts is a major advantage.

• Hire a good web developer who can provide live feeds for currency quotes and other financial information. Have him optimize your website so that your prospective customers can find you quickly on the Internet.

Reference:

• How to Start a Foreign Exchange Business
• How to Open a Foreign Exchange Business